Court Finds Title Insurance Company Subject to Higher Standard to Avoid Bad Faith Claim under a Reservation of Rights

The highest court in Hawaii has ruled against a Title Insurance Co. facing a bad faith lawsuit. The case indicates an interesting principal in cases where insurance companies elect to defend cases under a “reservation of rights.” This phrase refers to an insurer agreeing to provide a defense against a liability claim by a third party subject to the carrier’s right to later dispute its obligation to pay the cost of defense and indemnity under the policy. While this decision is not controlling precedent in Florida because it was decided in another state, the decision raises an interesting issue for Florida courts to consider when evaluating bad faith claims following a reservation of rights.

In Anastasi v. Fidelity National Title Insurance Co., a real estate investor filed a lawsuit against a title insurance company, alleging the carrier delayed payment of $2.4 million under a title insurance policy. The trial court granted the title insurance company’s motion for summary judgment based on a finding that the insurer acted reasonably in providing a defense and that the insurer conducted a full and timely investigation. Upon appeal to the state’s highest court, the lower court decision was vacated based on the rationale that a more exacting standard of good faith applies when an insurer defends a case under a reservation of rights.

The court’s summary of the facts provide as follows: Alajo Nagy (Nagy) borrowed $2.4 million from broker Lloyd Anastasi (Anastasi) to purchase a property. The property was owned by a trust with Paul Stickney (Stickney) designated as the trustee and Gregory Rand (Rand) as the beneficiary. Nagy executed a $2.4 million mortgage in favor of Anastasi. Nagy subsequently received a warranty deed that appeared to have been executed by Stickney that deeded the property to Nagy. Anastasi subsequently obtained a title policy in the amount of $2.4 million covering the subject property.

Rand and Stickney later filed suit against Anastasi and Nagy claiming that Stickney’s signature on the deed was a forgery. Examination of the signature revealed that it varied significantly from exemplars from Stickney. Anastasi requested that the title insurance company provide a defense, and the insurer did under a reservation of rights.

Anastasi subsequently filed a lawsuit against the title insurance company alleging breach of contract and bad faith. He contended that the title insurance company engaged in unreasonable delay by pursuing fraud litigation for two years against the insured even though the insurer knew during this period that the deed was forged. The insurer paid $2.4 million after the lawsuit was filed and asserted the payment constituted a defense to the bad faith claim.

The state’s highest court affirmed that it had adopted a higher standard for good faith by insurer’s who defend an insured under a reservation of rights. This higher standard bars the carrier from engaging in conduct that evidences a greater interest for its own financial gain than the risk of loss to the policyholder. The court noted that the insurer waited a substantial period after confirming the deed was forged to make payment. This evidence was sufficient to support a determination that the title insurance company acted in bad faith under this heightened standard reasoned the court.

While this decision does not carry the weight of precedent in Florida, the decision reveals the benefit of legal representation in a bad faith action. The legal standard applied in a case, such as the higher standard for good faith conduct in this lawsuit can have a significant impact on the outcome of a claims dispute.

You can reach Attorney J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email J.P. directly at [email protected].

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